- A competitive pricing strategy is easy to implement and allows businesses to adjust prices in real-time to respond to market changes, attract price-sensitive customers, and encourage healthy competition.
- It is important to consider factors such as production costs, profit margins, target audience preferences, brand image, and long-term goals when adopting it.
- While it may work well for businesses that sell standardized products or services, it may not be the best pricing method for service-based agencies that prioritize quality and expertise over price.
Nobody likes to endure the pain of losing clients to competitors. Yet, it’s a common scenario most business owners have experienced. You invest your time and resources in nurturing a relationship only for the prospect to back out at the last minute. Why? Because they got a better deal elsewhere. This is why many consider competitive pricing strategy as the best pricing strategy for staying in the game.
While several factors influence client decisions, it’s no secret that pricing significantly impacts whether you win or lose business. A well-implemented competitive pricing approach helps you avoid watching potential clients walk away to lower-priced competitors.
In this article, you'll learn everything about implementing a successful competitive pricing strategy, including its benefits, potential pitfalls, and the specific factors to consider when adopting it for your service business.
What is a competitive pricing strategy?
A competitive pricing strategy is a pricing model where a business sets its prices to align with what competitors charge for similar products or services.
This pricing strategy focuses only on adopting competitors’ prices without considering profit margins, production costs, or rent. The goal is to make your prices more attractive to customers and gain market share.
Why choose a competitive pricing strategy?
Here are several reasons businesses choose competitive pricing as their preferred pricing method.
1. Pricing structure is easy to implement
Setting prices for your products can be tricky, especially if you are new in the industry. But by performing a competitive price analysis, you can easily set a price range while focusing on marketing and other important activities.
Also, this pricing model strategy is considered low-risk because your competitors have most likely done their homework before setting prices. If it works for them, chances are high that it will work for you.
2. Adjust change prices in real-time
Competitive pricing allows businesses to respond quickly to changes in the market, such as price fluctuations and new entrants. You can promptly adjust your prices by aligning with competitors to avoid losing customers or reducing profit margins.
3. Attract price-sensitive customers
Technology has made it easy for today’s consumers to compare prices with a few clicks. That’s why they are becoming more price-sensitive and less loyal to brands, as they are always hunting for the best deals.
87% of shoppers say knowing they got a good deal is important to them when deciding which brand or retailer to buy from, according to a study from Google/Ipsos, Global, Global Retail Study, Base. Even at the decision stage of the buyer’s journey, consumers are likely to jump ship when they get a better offer. As such, using competitive pricing will win customers who prioritize price when making a buying decision.
4. Easy to combine with other pricing strategies
By combining this model with another pricing strategy, you can create a pricing structure that is attractive to potential clients and profitable for you.
For instance, assuming you already implement project-based pricing or fixed-cost pricing for your business. You can research your competitors to know what they charge for similar projects and adjust prices based on your findings. This way, you’re not leaving money on the table by undervaluing your services.
5. Encourages healthy competition
Another pro of competitor-based pricing is the healthy rivalry it encourages. Companies are always on their toes to offer better services and top-notch customer experience.
Some common examples include Uber vs Lyft, Pepsi vs Coke, and Burger King vs McDonald’s. These companies are always in competition with each other to offer the best deals to their customers.
Does the competitive pricing strategy work for agencies?
As I’ve established throughout this article, competitor-based pricing is great for businesses that want to attract and retain price-sensitive customers. But will it serve you as an agency owner?
The truth is, there’s no harm in researching your competitors to know what they charge for similar services. However, it may not be the best pricing method for agencies that run service-based businesses because clients are often more interested in quality, expertise, and results, rather than the lowest price.
But if you have good automation and processes in place, you can underprice competitors and offer the same quality without affecting your profit margins.
Take Harry Strick, founder and CEO of Ranked.ai for example. He uses automation to streamline his processes without affecting quality.
Structured pricing makes sense if you’re able to deliver a structured service that isn’t customized and work out the operational technicalities. For us, we do one singular workflow at scale for thousands of clients. Hire in-house and segment the service deliverables so that everyone focuses on one part. This allows us to scale to thousands of clients, be on time and improve quality. It also helps with margin expansion without the need to increase prices. We are in a unique position because we don’t have any CAC/sales expenses. I recommend agencies figuring out how much time they spend with the client and nurturing the relationship, and price accordingly for their time.
Harry Strick,
Ranked.ai
Overall, the decision to use a competitive pricing strategy for agencies depends on the specific industry and target audience. Carefully consider all factors before adopting this pricing model to ensure they remain profitable without compromising quality.
Types of competitive pricing strategies
There's more than one way to approach competitive pricing. Here are five distinct strategies you can implement depending on your specific business goals:
1. Price skimming
What it is: Setting an initial high price for a product or service, then gradually reducing it over time.
When to use it: Best when entering a market where there’s little or no competition and you have a first-mover advantage.
How it works: You maximize profits before competitors enter the market, then strategically lower prices to retain customers as competition increases.
Example: A digital agency launching an innovative AI-powered service at a premium price point, then gradually reducing rates as similar services enter the market.
2. Penetration pricing
What it is: Setting prices below the market average to quickly gain market share.
When to use it: When you’re entering an established market without a first-mover advantage.
How it works: You attract price-sensitive customers first, then gradually increase prices as your brand reputation grows.
Example: If competitors charge $1,000 for a LinkedIn service, you break into the market at $850, then increase to market rates as you establish credibility.
Watch out for: The potential losses from selling below market rate during your entry period.
3. Loss-leader pricing
What it is: Selling products or services at a loss or significantly reduced price to drive customer acquisition.
When to use it: When you have higher-margin services that clients typically purchase after trying your entry offering.
How it works: You sacrifice profit on one offering to boost sales of other products with higher profit margins.
Example: A marketing agency offering website audits at $99 (below cost) to convert clients to a $2,500/month full-service package.
4. Premium pricing
What it is: Intentionally pricing higher than your closest competitors.
When to use it: When you want to position your business as a luxury or premium brand.
How it works: Higher prices create a perception of superior quality and exclusivity.
Watch out for: This strategy won’t attract price-sensitive customers who prioritize cost over perceived quality.
5. Price matching
What it is: Simply matching the prices set by your main competitors.
When to use it: In industries where price is a major factor in purchasing decisions, and your offering is similar to competitors.
How it works: You eliminate price as a deciding factor, forcing customers to choose based on other variables.
Pro tip: Stand out by adding value through guarantees, faster delivery, superior customer service, or other enhancements that don’t significantly impact your cost structure.
With that said, most successful agencies don’t apply a single pricing strategy across all their services. The best approach is often mixing these strategies based on service type, competitive landscape, and profit requirements.
Competitive pricing: Key considerations
Competitive pricing may sound like the perfect strategy. Set the same price as my competitors and call it a day. But it doesn’t always work that way.
To ensure you’re not losing money or customers, there are some factors to consider before adopting a competitive pricing model. Let’s take a look at some of them.
Production costs
Let’s assume it costs your competitors $100 to manufacture a product and they price it at $150. Setting your price at $140 might seem like a good idea to undercut them.
However, this will only make sense if your production costs are lower than $100. If it’s more, you’ll struggle to become profitable and may have to sell a bigger volume to break even. As such, it’s essential to factor in your production costs before setting similar prices to your competitors.
Profit margins
While it is essential to stay competitive, ensure your business is profitable. After all, that’s the goal of every business. Before adopting your competitor’s prices, calculate your margins to determine the profit necessary to keep the company afloat.
Target audience
Price isn’t the only thing customers look out for when making a buying decision. Other factors like quality, brand reputation, social proof, and convenience also play a significant role.
Before pricing your products to align with your competitors, understand your target audience’s buying behavior and find out what they value the most. A client who appreciates quality over price will have no problem choosing your business if you offer better quality.
Brand image & positioning
Brand image plays a crucial part in any business. You risk losing customers or harming your business if you set prices that don’t match your brand image.
For instance, running a luxury business while adopting prices similar to low-budget or mid-range brands won’t help to maintain a premium status. Also, customers will assume you’ve reduced the quality of your product or service since prices are lower. Therefore, they would no longer want to be associated with your brand.
But if you want a share of the mass market, you can sell lesser-priced products that cater to that audience. This will help to attract customers at all price points without diluting your brand.
Long-term goals
Starting a business is the easy part. The hard part is maintaining it over time. As such, when implementing competitive pricing for your business, it’s important to factor in your long-term goals.
Competitive pricing may boost sales in the short-term but is it sustainable in the long run? It’s in your best interest to consider how this strategy fits in with your long-term objectives. How will it affect your profitability, market share, customer base, and overall business growth?
By keeping all the aforementioned factors in mind, you can select the right competitive pricing strategy that works for your business, attract customers, make a profit, and meet your long-term goals.
Pricing strategy comparison matrix
When it comes to choosing the right pricing strategy, don’t fall into the trap of thinking it’s an all-or-nothing decision. The matrix below isn’t just for comparison—it’s a toolkit you can apply across different service offerings.
Pricing Strategy | Best For | Profit Potential | Client Perception | Example |
|---|---|---|---|---|
Competitive Pricing | Standardized services, established markets | Medium | Fair market value | A web design agency charging $3,000 for a basic website because that’s the local market rate |
Value-Based Pricing | Results-driven services with measurable ROI | High | Investment with returns | An SEO agency charging 10% of revenue increase attributed to their work |
New agencies establishing baseline | Low-Medium | Transparent relationship | A content agency charging $150/article based on writer costs plus 40% markup | |
Package Pricing | Scalable, repeatable services | Medium-High | Clear deliverables | A social media agency offering Bronze/Silver/Gold monthly packages |
I’ve seen many agencies successfully use competitive pricing for their standardized services, value-based pricing for their strategy work, and package pricing for their core deliverables. With that said, the key is alignment—match each service category to the pricing model that both attracts clients and protects your margins.
Is your current pricing approach working for every service you offer? Probably not. Review this matrix quarterly as your agency grows, and be willing to adjust based on real client feedback and conversion data. Remember, the most successful agencies aren’t stuck on a single pricing philosophy—they’re pragmatic about what works for each service line and client segment.
A strategic approach to competitive pricing
For service businesses, competitive pricing requires balancing market rates with value delivery. Here’s how to implement it effectively.
Service segmentation analysis
Categorize your services into:
commodity services (easily comparable)
value-added services (unique differentiators)
premium services (specialized expertise)
Example: A digital marketing agency might classify social media posting as a commodity service (price-match competitors), conversion rate optimization as value-added (slight premium), and industry-specific marketing strategy as premium (significantly higher than competitors).
Operational efficiency assessment
Before matching competitor prices, analyze your delivery costs:
Time tracking: average hours per deliverable
Resource allocation: team member costs per project type
Technology stack: Tools that reduce manual effort
Real world example: Solomedia Group implemented time tracking in order to accurately to bill clients correctly and maintain a good price point compared to competitors.
Finding your ideal pricing strategy
With that said, choosing the right pricing approach depends entirely on what you’re trying to accomplish with your agency. The strategy that works for a new market entrant won’t be the same as for an established premium brand.
Let’s look at which competitive pricing approach aligns with your specific business goals:
What is your primary business goal?
Competitive pricing toolkit for agencies
Let’s be honest—knowing your competitors’ prices is only half the battle. You also need a system to implement and manage your competitive pricing strategy effectively.
Below are a few tools you should check out in order to stay comopetitive.
Market research tools:
SpyFu ($39/month): Track competitor digital marketing spend
SimilarWeb (Free tier available): Analyze competitor traffic and engagement
Owler (Free): Competitor revenue estimates and company information
Price monitoring:
Prisync ($59/month): Automated competitor price tracking with alerts
Price2Spy ($25/month): Scheduled reports on competitor pricing changes
Pricing psychology resources:
Book: Priceless by William Poundstone: Learn psychological pricing triggers
PricingPsychology.com newsletter: Monthly updates on pricing strategy research
Remember, the goal isn’t just to match competitors—it’s to find that sweet spot where your pricing attracts clients while your efficiency delivers better margins than the competition. The right tools make all the difference in achieving this balance.
Common challenges and solutions
Implementing competitive pricing isn’t always smooth sailing, especially for service businesses. Here are the roadblocks you’re likely to encounter and how to navigate around them.
Our competitors keep lowering their prices
You’ve set your prices based on competitors, but they keep dropping theirs. What now?
Solution: Don’t get caught in a race to the bottom. Instead, establish a pricing floor based on your minimum acceptable profit margin. If competitors dip below this, pivot to emphasizing your added value rather than matching their unsustainable prices. Create a simple one-pager that visually compares your comprehensive service against their stripped-down version.
Clients are treating our services like commodities
When you compete on price, clients start focusing solely on cost comparisons rather than quality differences.
Solution: Implement a tiered service structure where only your entry-level offering uses competitive pricing. Make your premium tiers clearly distinct with high-value additions that can’t be easily compared. With each client interaction, emphasize your process and results rather than deliverables—these are harder for clients to directly compare against competitors.
Generate tiered packages for your agency.
Our margins are suffering
You’ve matched competitor pricing, but your profit margins are taking a hit because your operational costs differ.
Solution: Before making any further price adjustments, conduct an operational efficiency audit. Look for automation opportunities in your client onboarding, project management, and delivery processes. Many agencies I’ve worked with discover they can reduce delivery time simply by implementing proper systems and templates, allowing them to maintain competitive pricing without sacrificing profits.
We can’t keep up with constant market research
Continuous competitor analysis is time-consuming and pulls you away from client work.
Solution: Set up a quarterly competitive pricing review rather than constant adjustments. Use automated tools like price monitoring software to alert you only when significant changes occur. For your most standardized services, consider creating a simple spreadsheet where team members can input competitor pricing they encounter naturally during sales conversations, building your intel organically without dedicated research time.
Remember, competitive pricing is a tool in your arsenal, not the entire strategy. The most successful agencies know when to compete on price and when to shift the conversation entirely to value.
Key takeaways
Implementing a competitive pricing strategy isn’t about blindly matching your competitors—it’s about strategic positioning that makes sense for your specific service offerings.
For agency owners, the most practical approach is segmenting your services rather than applying one pricing strategy across the board. Your commodity services can use competitive pricing, while your specialized offerings should command premium rates.
Remember that operational efficiency is your secret weapon. The agencies that succeed with competitive pricing aren’t necessarily charging more—they’re delivering the same quality with less overhead through proper systems and automation.
Don’t fall into the race to the bottom trap. Always establish your pricing floor based on your minimum acceptable margins, and be ready to shift the conversation to value when competitors drop below it.
Disclaimer: This article provides general information about pricing strategies for service businesses. While we strive for accuracy, this content should not be considered financial advice. Every business has unique circumstances. We recommend consulting with a qualified financial professional or business advisor before making significant changes to your pricing strategy.
